economics

1. which statement is correct?
a inacommand economy firms compete and profit maximise allocating resources efficiently.
b- inacommand economy resources are privately owned.
c_ inamarket economy prices are used to signal the value of individual resources.
d_ ina market economy resources are allocated by central planners.
a

2 ~the diagram shows the market for a product, the production of which has both external costs and
external benefits.
costs, msc
benefits
mpc
— mee
| aq mpb
a w xy z quantity
what is the difference between the level of output that would be produced by the market and the
socially optimum level?
a wx b wy c xy d xz

3 the government is considering building flood defences along a river. it has calculated the costs
and benefits as follows.
costs benefits
$m $m
private 450 260
external 60 190
according to cost-benefit analysis, which decision and reasoning about flood defences is correct?
[seein [soning |
a build external benefits are greater than external costs
b build social benefits are greater than private benefits
cc do not build private costs are greater than the external benefits
d do not build social costs are greater than the social benefits

4 the graph shows the total utility (tu) obtained by a consumer from eating biscuits over a period

of one hour.

total utility : ' h

po of fe
0 1 2 3 4 5 6 tt
biscuits eaten in an hour

after eating how many biscuits does the consumer’s marginal utility begin to diminish?
a 3 b 4 cc 5 d 6

5 the diagram shows budget lines for normal goods x and y.
p
good y
oo r q
good x
what could cause a budget line to shift from pq to pr?
level of
price of x price of y consumer
incomes
a fall rise fall
b no change rise no change
cc rise no change no change
d rise no change rise

6 aconsumer spends all of their income on two goods, y and x, and is at position e. the price of x
falls and the price of y remains constant.
the graph shows indifference curves and budget lines which are used to determine the price,
income and substitution effects that are related to this price change.
x % in)
y,
l
1,
oo x, x xs xx, xs xs
x

which distance gives the income effect of this price change?
a x1x2 bo xix4 cc x2x4 d  xsx¢6

8 what cannot be changed in the short run?
a the level of stock held by firms
b | the level of technology available
c_ the market price of goods
d the output of individual firms in an industry

9 the market structure of an industry changed from being an oligopoly to monopolistic competition.
what is most likely to have increased?
a an individual firm’s ability to influence the market price
b an individual firm’s degree of interdependence in the market
c_ the concentration ratio in the market
d_ the number of firms in the market

10 a firm has total production cost of $200000. its average fixed cost is $120 and its average
variable cost is $80.
what are the firm’s total fixed costs?
a $12000 b $40000 c $80000 d $120000

11. what is a characteristic of monopolistic competition?
a_ abnormal profits in the long run
b advertising supporting product differentiation
c all firms charge the same price
d barriers to entry are high

12 the diagram shows the marginal cost (mc), average variable cost (avc) and average total cost
(atc) curves of a profit maximising firm in a perfectly competitive market.
cost me atc
avc

big heseeere geese sree eascmtes=:

pah -arggeetrecoreee oe aa

a a ae

a a a

oo output
which market price would mean the firm would operate in the short run but not in the long run?
a p, b p. cc p3 d py

13 the table shows the average incomes of the richest 20% of households and the poorest 20% of
households in the uk (2015-2016), and the effects of government taxation and benefits on
average income.

average income average income
(£) of (£) of

richest 20% poorest 20%
before taxes and benefits 85000 7000
after direct taxes and cash benefits 68 000 13.000
after all taxes (direct and indirect) and all benefits 63 000 17000
what can be concluded from the information in the table?
a the effects of direct taxation have affected the rich less than the poor.
b the government’s policy achieved income equality across households.
c_ the government redistributed all income taken from the rich to the poor.
d_ the government’s policy reduced the income inequality between the poor and the rich.

14 assuming there are no externalities, where would a nationalised firm set output to maximise
social welfare?
a where average revenue equals average cost
b_ where average revenue equals marginal cost
c_ where marginal revenue equals marginal cost
d_ where marginal revenue is zero
a

15 what is the specific advantage of pollution permits, when compared with an alternative policy of
taxes levied on the quantity of pollutants emitted by firms?
a firms have a financial incentive to reduce pollution
b no monitoring of firm’s emissions is required
c pollution levels can be reduced to zero
d_ the reduction in the level of pollution is more predictable

16 which diagram correctly shows the relationship between the average product (ap) and the
marginal product (mp) of labour, given that the quantities of other factor inputs remain constant?
a b
average mp average
product, ap, product,
marginal marginal
product product
mp ap
9 labour 0 labour
cc d
mp
average average ap
product, product,
marginal marginal
product product
ap mp
0 labour o labour

1/ the diagram snows the short-run relationship between the total output of a firm and the quantity

of labour.

total

output total output

oo quantity of labour

what can be concluded about the firm?
a lt is experiencing increasing returns to scale.
blt is experiencing constant returns to scale.
c_ the marginal physical product of capital is constant.
d the marginal physical product of labour eventually diminishes.

18 company x reduces its number of workers from 250 to 200 and as a result its output decreases

from 5000 to 4800 units per day.
company y increases its number of workers from 800 to 1000 and as a result its output
increases from 2000 to 2200 units per day.
what happens to labour productivity of the workers in the two companies?
[conan [conan

a falls rises

b rises falls

cc rises rises

d falls falls

19 what is not included in the measurement of national income?
a_ age-related pensions
b_ dividends obtained from foreign investments
c housing authorities’ income from rent
d profits distributed to shareholders

0.35 0.35
0.3 0.3
1990 1995 2000 2005 2010 2011 2012 2013 1990 4995 2000 2005 2010 2011 2012 2013
life expectancy gni per capita, ppp (2011 ppp)

0.35 0.35
oe a oe a

1990 1995 2000 2005 2010 2011 2012 2013 1990 4995 2000 2005 2010 2011 2012 2013
between 2005-2010, which components of hdi have comparable changes to its overall change?
a education and gni per capita
b_ education and life expectancy
c_ education, gni per capita and life expectancy
d_ gni per capita and life expectancy

21 what makes it possible for the increase in real national output to exceed the increase in labour
productivity?
a anincrease in employment
b_anincrease in the inflation rate
c_ anincrease in the money supply
d_anincrease in total earnings

22 the table shows the annual percentage (%) change in china’s gdp and the contribution of some
of its component parts between 2006 and 2012.
| 2008 [2007 | 2008 | 2000 | 2010 | zor | 20r2 |

gdp 12.7 14.2 9.6 9.2 10.4 9.3 ti
consumption 5.4 5.6 4.2 46 4.5 5.2 4.2
investment 5.5 6.0 4.5 8.1 55 4.5 3.9
net exports 24 2.6 0.9 -3.5 0.4 -0.4 -0.4

what can be concluded about china’s economy between 2006 and 2012?

a china’s current account was in surplus more years than it was in deficit.

b_ china’s economic rate of growth fell in more years than it rose.

c_ china’s growth was greater overall in consumer goods than in capital goods.

d_ china’s standard of living rose at a decreasing rate.

23 what is a cause of seasonal unemployment?
a ageneral decrease in the demand for goods and services
ballack of necessary skills in the workforce
c atemporary change in the pattern of consumers’ expenditure
d anunwillingness of workers to move to other parts of the country where there is work

24 which row correctly identifies leakages from a country’s circular flow of income?
[freee [a a
(s > 1) (t>g) (x > m)
a no no yes
b no yes yes
cc yes no no
d yes yes no

25 in a closed economy with no government expenditure and no taxation, the initial income is
$5000 million. all savings are carried out by consumers, who save 20% of any additional income
received above $5000 million. firms plan to invest $1000 million.

what is the value of the multiplier?
a 08 b 4 cc 5 d 8

26 the diagram shows a liquidity preference curve (lp) representing the demand to hold money in
relation to the rate of interest and the money supply (ms) in an economy. the market is in
equilibrium at interest rate r.

ms
rate of
interest
f sores lp
oo quantity
of money
if the government increases the money supply, what will be the effect on the interest rate?
a falls below zero
b falls to zero
c_ increases
d_ no effect

27 an increase in which of the following will cause a decrease in investment spending?
a business confidence
b company profits
c interest rates
d national income

28 the graph shows a shift in the liquidity preference curves for an economy from lp, to lp2.
lp, lp,
rate of
interest
ie) quantity
of money
what might have caused this shift?
f ‘ increased pessimism
an increase in
' ‘ about the future
real national income
of the economy
a v v
b v x
cc x v
d x x

29 what is most likely to increase in the short run following a rise in an economy's rate of inflation
caused by a demand-side shock?
a the current account deficit on the balance of payments
b the price of government bonds
c_ the purchasing power of the currency
d_ the rate of unemployment

30 which combination of policies is most likely to increase output?
[| teetpotay monetary pte |
a decrease budget deficit decrease interest rates
b decrease budget deficit increase interest rates
cc increase budget deficit decrease interest rates
d increase budget deficit increase interest rates

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